There may be e-commerce gold in China, but it’s hard to mine

While athletic shoe brand Puma SE sells online in 31 countries, its No. 1 online sales day came in a country where it didn’t even have its own e-commerce site and wasn’t selling its latest styles. The country was China and the date was Nov. 11 of last year, a date that’s called Singles Day (because of the 11/11 notation) that’s become China’s equivalent of U.S. online shopping spree days Cyber Monday (the Monday after Thanksgiving) and Black Friday (the day after Thanksgiving).

“When I saw those numbers beat Cyber Monday and Black Friday, that opened my eyes,” says Tom Davis, Puma’s global head of e-commerce.

There was no comparable eureka moment that put China on the map for Valerie Hoecke, senior vice president of digital for high-end beauty brand Benefit Cosmetics. But she’s seen studies predicting that China will soon pass Japan as the world’s leading market for luxury goods. China, she says, “is one of our cornerstones for growth in the coming years.”

What Davis and Hoecke have in common is that both their brands have launched freestanding e-commerce sites in China, in Puma’s case only in recent weeks. That’s a big step in China where many consumers start their online shopping trips at Taobao and Tmall, two marketplaces operated by Alibaba Group, No. 1 in the Internet Retailer Asia 500 rankings, and similar shopping portals operated by such Alibaba rivals as Jingdong and the China unit of Amazon.com Inc. Jingdong is No. 3 in the Asia 500 and Amazon No. 4.

Price competition is fierce on the Chinese online marketplaces, as both Benefit Cosmetics and Puma have learned from their experiences selling on Tmall, the Alibaba marketplace more oriented to big brands than the larger Taobao, where millions of mostly small Chinese companies sell in a bazaar-like setting.

The prevalence of heavy discounting is why Benefit Cosmetics no longer sells on Tmall, Hoecke says. “We found it extremely promotional, and that level of promotional focus is out of keeping with how we present our brand as a prestige brand. We try not to be all about ‘discount, discount, sale, sale,’ and that’s very much what selling on Tmall is all about.”

Puma has been selling on Tmall since August 2011 and early this year started selling on Jingdong.com. “We’re trying to curb the discount out of the gate with Jingdong, as we may not have done with Tmall two years ago,” Davis says. “At Tmall we started out accepting it’s going to be a 50% discount. Now we’re trying to pull it back to 30%, and starting on Jingdong with a similar discount as Tmall.”

Both Benefit Cosmetics and Puma have launched their own e-commerce sites in China, and begun the arduous task of persuading Chinese shoppers to navigate to those brand sites, rather than going to a marketplace like Tmall and searching for a product or brand.

Benefit Cosmetics has been at it longer, having launched BenefitCosmetics.com.cn in 2011. The company has found that some of the basic tools brands use to market themselves in North America and Europe don’t work very well in China, Hoecke says.

Paid search ads deliver poor returns because relatively few Chinese shoppers go to China’s main search engine, Baidu, to begin a shopping trip, instead going to shopping portals like those of Alibaba and Jingdong. Nonetheless, she says, many brands advertise there, trying to get in on the boom in Chinese e-commerce, and that raises pay-per-click costs. “The market hasn’t stabilized yet,” she says. “Everyone is willing to spend money to get in front of consumers.”

Nor is e-mail very effective for Benefit Cosmetics. Hoecke says the young women her company targets are reluctant to opt in to receive e-mail, and rarely open the marketing e-mails they do receive.

Chinese consumers, she says, are more likely to communicate with friends via WeChat, a mobile social network that parent company Tencent says had 236 million active monthly users in the second quarter of 2013. Benefit Cosmetics has just started promoting itself on WeChat and is working on a mobile version of its Chinese e-commerce site. “Mobile is super-important,” Hoecke says.

Hoecke would not disclose online sales or traffic from BenefitCosmetics.com.cn, but says, “We’ve seen nice growth, 50% over last year.” The sales alone would not justify operating an e-commerce site, she says, but the revenue does help support the Benefit Cosmetic’s four-person digital team in Shanghai that promotes the brand through social media and other means.

Benefit Cosmetics built its Chinese e-commerce site on technology from hybris, which was recently acquired by Germany-based business software company SAP AG. Benefit Cosmetics is part of global luxury brand marketer LVMH, which also owns Sephora, No. 144 in the Internet Retailer 2013 Top 500.

Puma, part of France-based retail conglomerate PPR SA, No. 33 in the Europe 500, prepared for the launch of its e-commerce site this summer by putting up a “coming soon” screen at Cn.Puma.com for several months before the site’s launch and collecting e-mail addresses. The company will do some paid search advertising, put flyers with information about the web site into shopping bags at the company’s couple of dozen Puma-owned stores in China, and seek to attract traffic through outdoor and other traditional forms of advertising, Davis says. He would not provide details on Puma’s e-commerce sales in China.

The site will feature a growing catalog of products and “a full-price representation of the brand,” Davis says, as opposed to the heavy discounts on the marketplaces like Tmall. Puma built its Chinese site on the e-commerce platform of Demandware Inc., which is also supplying the technology for 23 online stores Puma has launched around the world in the last two years, Davis says.